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In This Show, We Cover:

How Joe got started with real estate, small at first, and with money he saved slowly at first.

How he established credibility with potential investors, without a track record.

How he overcame is own personal doubts and beliefs to go from a few rental houses to his first apartment building deal, a HUGE 168 unit!

How he raised money to buy the 168 unit apartment building.

He talks about his biggest challenges with this deal.

The importance of “being inspired” by a deal you’re about to do to inspire your potential investors to invest with you.

A personal success habit that helps him be successful as a real estate investor.

Tweetable Topics

“The fastest way to success, is knowing WHY you want to do something”. (Tweet This) “Help enough people get what they want and eventually you’ll get everything you want”. (Tweet This)

Transcript

Tell us about you and then about your business

I was in advertising, I was the youngest VP of advertising at my firm in NY, I moved there 2005. But after several years, and despite my success, it wasn’t fulfilling any more. I was investing on the side, and had a small portfolio of rental houses in Ft Worth TX using my own money. I didn’t have any money after college. In advertising you don’t make any money starting out. It took me a couple of years to save up $2000. I went to my bank, and they had a CD paying 1.2%. I gave them $1000, they held it hostage for 12 months. The day I got that return of $18, I remember standing on the street corner on NY city. The world was very crystal clear that this wouldn’t happen again. There had to be a better way. I read Investing for Dummies: it lists, stocks bonds, LLCs, and real estate. I read Rich Dad Poor Dad, and I was hooked. I said I was going to buy my first rental property. It took me 4 more years to save up enough for my first house. As I was making more money in my job, my lifestyle didn’t change. I’m still living in the same apt in 2006 when I wasn’t making any money. I bought my first rental house for $76K with $20,000 down, it was cash flowing about $250 per month. I bought my 2nd house with 10% down through a Home Path loan program. So $12K was out of pocket.

What did you do after you left your job?

I wanted to consult college students who wanted to break into the advertising industry. I spent like $3000 to create a web site for this. Then I realized that college students couldn’t afford a consultant. So that business failed. I then turned my attention to a more proven model, deal syndication. In October 2012 I opened my first book on evaluating apartments. I started reading books, and I hired a mentor, he was an author of one of the books I read. So we started working together. It was a combination of him teaching me how to raise money and analyze deals.

How did you find the deal?

The main challenge was that I didn’t have an established track record in apartment investing. I underestimated the importance of credibility when talking with professionals in the industry. You have to convince people that you’re not wasting they’re time. So I had to establish credibility.

How did you first establish credibility? I studied up on the terminology. I needed to use the right language and appear like I know what I’m talking about. I created flash cards for all of the important terms and I memorized them. I surrounded myself with people who had more experience than I do. That’s my mentor, my property management company, my legal team. The first team member you should recruit is a good property management company. Then you can say “I’m working with XYZ management company” and that alone gives you credibility.

Back to finding deals …

That still wasn’t enough. I was actively looking for deals in Tulsa and in Dallas Ft Worth and I built out teams in both of these markets. I flew down there even though I didn’t really get any deal flow. Visiting Tulsa was important because I could meet the brokers in person and attend the conference. I met a developer, and I’ve stayed in touch with him, and he’s been so very helpful. The result of that trip, we made offers on 7 properties in the Tulsa market. For various reasons, the Tulsa market was too hot, they were asking for too much, cap rates were too low. Eventually I came across this opportunity through my mentor in Cincinnati, OH, but I had no clue about Cincinnati. The first thing I did was research the market, so I looked at job growth. I looked at the deal in more detail, started to build out my team. My team members said the building was in a good area.

What about the investors?

I had been talking with the investors the entire time, using a hypothetical deal, so that when the actual deal came, we were ready to go. I had never raised any money before, so it was terrifying. My challenge was that people thought of me as an advertising guy not as a real estate guy. I was teaching a class in NY on how to invest in real estate outside of NY city because I had houses in TX. So people knew that I was doing this. They knew I was already a good business person through my advertising career (we grew the advertising business from 7 to 100 people!), I had a lot of exposure to the executive team in that company, some of which who decided to invest. The key to identify your potential investors is to list out every group that you’re a part of, then write out the name of all the people you know in that group. For me, I was working in advertising, so I had co-workers and clients. I’m on an advisory board. I’m the captain of a flag football team. Then there are the people I know in Dallas. People I went to college with. The key is to get one person from each of those groups to commit. Then it’s much easier to speak to others in that group and get them to commit as well.

Let’s talk about your 168 unit deal.

The minimum investment was $25,000. I gave the investors a preferred return of 8%. The range I’ve seen varies greatly based on the investment. I was talking with an experienced syndicator and he said that his preferred returns are between 4% and 8%. I’ve seen as high as 10%. I ask my investors what other syndicated deals they’ve seen. I also give them some equity, too. I pay out distributions quarterly.

What’s the business plan for this deal?

It’s a value-add deal. The owner was managing it himself, we replaced him with a professional property manager. We’re addressing maintenance issues, doing some cosmetics, improving turn-over. We’re in the path of progress, that’s a key to buying. You have to buy right, then manage it right. A mile east there is the 2nd largest Kroger market place, a mile to the west there’s a very large town called Anderson, OH that has a Lowes, Target, and is really being built up, and we’re right along the state highway that connects the two. One thing I also look for, and this is not scientific, but I look to see where the closest Walmart and McDonald’s are, because they’re pretty smart people WRT gauging growth. When were they built, because it gives me an idea to this area popping. I’m a baseball throw away from the McDonalds.

What was your biggest challenge with this deal?

The biggest challenge was actually getting the deal coming across my desk. The 2nd biggest challenge was to raise the money. I had no intention of buying 168 units, I was looking for 30 units and raise $200,000 from 5 investors. The 168 units destroyed my limiting belief. When I put it under contract I had verbally committed around $200,000. Of that, $150,000 was from one investor. He asked me if I could raise this money. I told him you tell enough people and eventually it’ll happen. On the deal I’m working on now, I’m going to have to raise $10M, and I have no idea how I’m going to do that.

I just make sure that I’m inspired by the deal.

Money will not be a factor. If I’m inspired and it makes sense, the money will come because I’m enthusiastic about it and others can tell. I worked with the brokers and had them re-invest their commission. We also used the prorated taxes and rents and used that to lower the amount that needed to be raised. I don’t have a rich family member, in fact, I don’t have a single family member investing with me. These are all people who know me from life. People invest in the first and in the deal itself second.

What made you consider that 168 unit deal? I envisioned myself closing on the deal. Then I wasn’t interested in a 30-unit deal any more. Next I’m focused on development opportunities. My world immediately expanded when I got that 168 unit come across my desk. I have faith, and I have my mentor and team members that can help me through the process.

What are you most excited about right now? About this development deal I’m working on right now. There’s two actually.

What else do you do besides real estate? I have three areas of professional focus. One is the 168 unit to make sure it performs, and I’m proud that it has performed as projected so far. The second is finding my next opportunity. I have a whiteboard and vision board in my bedroom with a new development. The third is helping others do the same, and I consult, help them raise money and analyze deals.

Do you have any kind of success quote? Tell us a story about how you applied that to your life? The quote I live by is a Tony Robbins quote. He says the secret to living is giving. Jim Rone (Tony Robbins’ mentor), he says “Help enough people get what they want and eventually you’ll get everything you want.”

Talk about a time you failed. Probably the first business and web site that failed.

Talk about any kind of “aha” moment you had, and how that impacted your life? If it’s possible, then I can do it. I watched many YouTube videos of personal development, also Ted Talks. I never turn on the TV. The limiting beliefs we put on ourselves are crazy.

What do you think sets apart successful investors from those who fail or never get started? It’s the reason WHY. Why are you doing this? If they have a compelling reason they get going. But if they don’t, they don’t take action. The compelling reason needs to be pleasurable and painful. What would be the rewards of taking action? And what happens when you don’t? Is there any pain if you don’t?

What’s the Best advice you ever received? I got it from my brother’s friend in college: Take all the free advice you can get and decide what you want to do with it. I listen to others, and then I decide what makes the most sense.

What’s a Personal habit that contributes to your success? Every day I do either 15 minutes to fulfillment, 30 minutes to strive or hour to power (Tony Robbins). First 5 minutes I think about all the things I’m grateful for, the next 5 minutes is thinking about things I’m grateful for things that haven’t happened yet. The 3rd part is incantation, “I’m a strong confident handsome billionaire that makes billions for my investors”. Getting the mindset right is so important. Nothing has meaning until we give it meaning.

Any Favorite books? I really like the book “48 Laws of Power” by Robert Greene , it’s a heck of a read, but it’s so incredibly insightful. They approach it from a historical perspective, looking at the most powerful people in history. And they have 48 laws that you must follow. And they give examples of people who followed.

How can people find you? You can Google my name “Joe Fairless”. I’ll give you my phone number, and I know that only 1% will ever call, but if they do, I’ll talk to them. My number is 347-409-3914 and my email is josephfairless@gmail.com.

Do you have any parting piece of guidance? The fastest way to success, is knowing WHY you want to do something. Then model it after people who have made it successful before, don’t reinvent the wheel.

9 Comments

Michael Blank
on July 11, 2014 at 1:42 pm

What questions do you have for Joe?

RobC
on July 12, 2014 at 12:49 am

What a phenomenal, inspiring interview! Thank you both for sharing your experiences with us aspiring multifamily entrepreneurs. This is definitely a repeat podcast again and again and again. I will be calling Joe soon. Thank you for giving your contact info!

Thanks Michael.
As always , very informative interview.
It brings up a lot of inspiration.

Ted
on July 12, 2014 at 12:00 pm

Michael,
This is great stuff

Kyron
on July 12, 2014 at 9:34 pm

Michael ,
First and foremost thank you for taking the time to give back to the real estate investment community by conducting this interview!!
Extremely inspiring and helpful to me while I’m putting together my 48 unit apt deal. I will call Joe this week because I want to talk with him about how he got through the financing hurdle with the lenders/banks once he raised the equity from all his investor contacts. I asked you about this one before and would be curious to see how he got the deal got structured as an LLC and what he had to overcome with the lenders’ approval process. That piece of an interview would be very helpful and give specific insight to navigate forward.
Lastly let me say that the mindset piece was priceless and added so much value to the conversation. It’s amazing to see how we let ourselves limit what we can and cannot accomplish in this world. Having a daily routine to excercise the mind seems critical to achieving whatever success we want.
All the best and thank you again…I’m very grateful!!!

GAMAL
on July 13, 2014 at 1:25 pm

Great , thank you Michael for always sharing.
This young man has great inspiration and imagination. I will call him soon. I get a lot of great deals come to my inbox for years and I have no fear of acquisition of large complex 200 unites plus. I think raising the fund is the essential tool to purchasing and if you do not get good at it by developing a system …THEN THERE IS NO BUSINESS.

Joe Fairless
on July 13, 2014 at 6:11 pm

@Rob, thank you so much for the kind words and sounds like we’ll be talking soon.

@kyron, first off, good luck with the 48-unit deal. I actually did some creative financing on the 168-unit deal where we got control under a Master Lease with Option to Purchase. Therefore, the existing owner still has a personal guarantee on the loan and the lender approval process wasn’t as relevant. Once we exercise our option to purchase (likely in a year or so from now – depends on a couple things) it will be.

Kyron
on July 19, 2014 at 9:15 pm

Hi Joe,
Can you tell me more about the structure of the Master Lease with Option to Purchase on the 168 unit deal? Was the Seller already looking at this option or were you able to get creative an offer this as a purchase strategy? I’ve tried something similar like this on other deals and it seems like the Seller’s Agent gets in the way because all they see is how they are not getting a full commission upfront or it seems to stretch their brain too much and can’t seem to get on board and kill the concept when they present it to the Seller…any thoughts or comments.
Thanks,
Kyron

Joe Fairless
on July 22, 2014 at 12:02 am

@kryron, sure, I’d be happy to.

The Master Lease was done because it was a solution to the seller’s (and, consequently broker’s) problem – they had a large pre-payment on the property and a loan assumption would mean too much out-of-pocket cash so the cash-on-cash return didn’t work.

Therefore, we agreed a Master Lease worked because because that got the seller his money while no longer managing the property. The brokers went along with it because it was the only logical way to move the property. They still got a commission but we had them invest their commission into the deal with us so that we could have a lower down payment.